Aamir Shaik, lending manager and director at Afiyah, told SMSF Adviser that SMSFs are becoming more popular within the Muslim community but until now there had not been a financing option available to meet the specific criteria of their religious beliefs.
“We have a broad and diverse population, from second and third-generation Australian Muslims, as well as an influx of skilled migrants and people who arrived in Australia after 2000 and have become Australian citizens,” Mr Shaik said.
“Many of them have built SMSFs with friends, families and colleagues and are wanting to purchase property.”
Mr Shaik said the Islamic faith does not allow loans with interest rates attached so the contract arranged with lenders is slightly different, and rather than a direct contract such as a home loan, it is more like a rent-to-own contract.
“Islamic finance is based on the principles of transparency, and risk-sharing. Interest-based transactions are completely prohibited and, instead, financing is provided through profit and loss-sharing agreements,” he said.
Funding also must be carefully vetted and must be sourced from a secure fund that has no “unethical” ties such as investment in products such as tobacco or alcohol.
“The funding must be ‘cleansed’ and structured in compliance with Sharia principles and it can be hard to build products along those lines.”
He said with Islamic finance now starting to emerge more strongly in Australia, there is a lot of interest in not just establishing SMSFs but growing portfolios of already established funds.
“We are getting lots of interest with people jumping onboard to set up SMSF with their accountant or adviser as well as those who already have SMSF set up and ready to go to secure loans for commercial and residential property,” he said.
“More families are now exploring these options, leading to an increase in informed discussions and decisions.”
The demand for Australian Islamic finance has increased in line with the growing Muslim population, which according to the latest census is around 3.2 per cent of the population or 820,000 people.
Mr Shaik said interest in house and land packages has been “particularly strong” in the expanding outskirts of cities like Melbourne and Sydney with around 82 per cent of applicants under the age of 45.
As ethical investing becomes more popular, Mr Shaik said the financing options for SMSFs available from Afiyah can be accessed by people not of the Islamic faith but it is more expensive than conventional options.
“There are no restrictions on who can apply but it may be wiser for non-Muslim people to consider other options because of the extra cost involved in this kind of financing,” he said.
“In saying that, we have seen a lot of Muslim Australians prepared to pay this as an entry point into establishing their SMSFs.”
